Effective 1/1/2019, dividends, interest, and royalty payments from Poland will meet higher tax rates, and timing/permanent differences based on a “pay and refund” system.
Statutory tax rates of 19%/20% will be applicable, unless certain pre-conditions are applied for, which may not be certain or provided timely.
These provisions will impact current cash flows with potential adverse consequences on the annual ETR, resulting in additional proactive actions (i.e. providing statements for lower withholding no later than early January, etc.) to mitigate such actions to the extent possible.
EY’s Global Tax Alert provides additional insight on this significant development for multinationals. Hopefully, other countries will not “follow the leader” by enacting similar actions.
Click to access 2018G_011959-18Gbl_Poland%20-%202019%20tax%20reform%20including%20strict%20withholding%20tax%20regime.pdf
Poland’s Corporate Income Tax Law will be formally amended, effective 1/1/2018.
- One of the most important provisions is the limitation in intercompany royalty and service payments, using an absolute limitation and EBITDA basis. (Note, a corollary offset does not provide matching offsets for the income inclusion by intercompany affiliates.)
This limitation goes beyond the OECD’s guidelines, and extrapolates interest deductibility that is veiled as a “base erosion” device.
Multinationals need to review and plan accordingly for this limitation, which provides some APA safe harbors obtained with the Polish Ministry of Finance. To the extent an APA is not possible and the limitation is exceeded, a company’s effective tax rate will be increased by this legislation.
EY’s summaries of this important development are included for reference:
Click to access 2017G_06049-171Gbl_Poland%20-%20APA%20to%20remove%20tax%20deductibility%20limitation.pdf
Click to access 2017G_06726-171Gbl_Poland%20passes%202018%20corporate%20income%20tax%20reform.pdf
The comment period, that ends 20 January, will be followed by an introduction of a general anti-avoidance rule (GAAR) that is broad and subjective in nature.
The Proposal defines tax avoidance as an act (or series of acts) applied in order to receive a tax benefit, which in certain circumstances defeats the object and purpose of the tax act, provided the way of conduct in the particular case was artificial. The determination of an artificial arrangement is further elaborated on via examples, including unjustified split of an operation, involvement of intermediary entities without substance, and a measure of economic vs. tax risk, among others.
This measure should be followed closely, as it can be applied very broadly, inconsistently and subject to the tax administration’s view of what is considered “artificial.” It also is focused on the use of holding companies without substance. EY’s Global Tax Alert provides further details on this development.
Click to access 2016G_CM6150_Polish%20Gov%20publishes%20draft%20amendments%20to%20Tax%20Code%20including%20new%20GAAR%20provision.pdf
Poland’s latest amendments to its Draft Bill incorporates a major change to the date for submission of a country-by-country report (CbCR).
The original draft (refer to 28 May 2015 post) provided a 1/1/2016 effective date, with the CbCR due at the end of 2017 for 2016 data. However, the latest draft moves the effective date of the Bill to 1/1/2017, however it also states that the CbCR must be attached to the 2016 corporate income tax return, generally due 3 months after the end of the tax year.
The final version of the bill should be monitored closely, as it would accelerate submission of the CbCR to 31 March 2017 for 2016 activity, which is significantly earlier than the 31/12/2017 date (for calendar year taxpayers) envisioned by the OECD’s BEPS Action 13 Discussion Draft.
The latest changes reflect the increasing emphasis on transparency and assessment of transfer pricing risk, a trend that is closely followed by all other countries in assessing their urgent need for transparency.
The EY publication link is attached for additional reference:
Click to access 2015G_CM5559_TP_Poland%20amends%20draft%20bill%20on%20TP%20documentation.pdf